The Public Service Commission releases an Overview of Financial Misconduct and a Report on the Indebtedness of Public Servants
21 February 2008
Overview of Financial Misconduct for the 2006/07 financial year
In terms of the provisions of the Public Finance Management Act, 1999, read with the Treasury Regulations, national and provincial departments are compelled to report on finalised financial misconduct cases to, amongst others, the Public Service Commission (PSC). In compliance with its mandate, the PSC has been reporting on financial misconduct since the 2001/02 financial year on an annual basis.
The PSC has decided to issue a comprehensive Report on Financial Misconduct on a biennial basis. The objective of the Overview on Financial Misconduct for the 2006/07 Financial Year (1 April 2006 to 31 March 2007) is, therefore, to provide a statistical overview and brief analysis of the information provided by national and provincial departments on finalised financial misconduct cases reported to the PSC for the financial year. This overview adds to the previous reports on financial misconduct published by the PSC and also enables the PSC to draw a comparison with the information on financial misconduct reported to the PSC since the 2001/02 financial year.
All national and provincial departments submitted reports on their finalised financial misconduct cases for the 2006/07 financial year. If no financial misconduct cases were finalised by a particular department, a nil return had to be submitted to the PSC for record purposes. Of the 35 national departments, 14 departments indicated that they had no financial misconduct cases for the financial year with 47 out of 107 provincial departments indicating that they had no financial misconduct cases for the financial year.
A total of 1 042 cases of financial misconduct were reported for the 2006/07 financial year, of which 370 cases were reported by national departments and 672 cases by provincial departments. This represents a substantial increase from the 771 cases reported in the previous financial year (2005/06).
Cost of financial misconduct
There has been a significant increase (186 percent) in the cost of financial misconduct from the 2005/06 to the 2006/07 financial year. This increase is largely ascribed to two cases involving very large amounts, namely the cases involving R16 million in the National Department of Agriculture and R60 million in the Department of Roads and Public Transport in Limpopo province. The two cases comprise 58 percent of the total cost of financial misconduct for the 2006/07 financial year.
The total cost reported by national and provincial departments emanating from unauthorised, irregular, fruitless and wasteful expenditure and losses resulting from criminal conduct for the 2006/07 financial year was R130 615 994.82. During the same period, an amount of R20 838 681.74 (16 percent of the total cost) was recovered from the employees found guilty of financial misconduct or the financial misconduct did not result in any loss to the State (e.g. a fraudulent Subsistence and Travel claim detected and therefore not paid). Although 16 percent seems low, it should be taken into consideration that departments have to report to the PSC on the outcome of the disciplinary case. Upon finalisation of the disciplinary process, the recovery of the value of the loss or damage has not necessarily taken place.
Types of financial misconduct reported
In terms of the Public Finance Management Act (PFMA), 1999, financial misconduct entails any material losses through criminal conduct, unauthorised, irregular, fruitless and wasteful expenditure. Departments reported various types of financial misconduct committed by employees. Cases in the category "fraud" comprise a significant portion (59 percent) of the overall number of cases reported. Furthermore, cases in the category "theft" comprise the second highest number of cases (13,1 percent). This trend is in keeping with previous financial years, during which cases in the category "fraud and theft" comprised 64,7 percent of the overall number of cases reported.
Levels of employees charged with financial misconduct
Financial misconduct seems to prevail at all levels in the public service. However, the largest number of financial misconduct cases was encountered at salary levels 1 to 8, with employees on salary levels 6 and 7 committing the highest number of financial misconduct.
Outcome of financial misconduct cases
Of the 1 042 finalised financial misconduct cases reported, 83 percent of employees were found guilty. This is the highest percentage of employees found guilty following charges of financial misconduct over the past five financial years (since the 2002/03 financial year).
Final written warnings (36 percent) were the most prevalent sanctions imposed upon a finding of guilty. Discharge as a sanction was imposed in 158 (18 percent) of the instances where employees were found guilty following charges of misconduct. Criminal proceedings were instituted against employees in 25 percent (257) of the cases.
When citizens elect government into office, they entrust it with the responsibility of governing and managing public resources responsibly. This in actual fact constitutes a contract of accountability between citizens and government. The degree to which public service institutions embrace the values of responsiveness, accountability and integrity in responding to the needs and demands of the people is an important aspect of good governance. Despite the responsibility entrusted to government to manage public resources and deliver services, not all public service employees are committed to upholding this obligation. The increased public transparency in the area of financial misconduct provides a powerful means to encourage better financial management, administration and public accountability.
The Overview on Financial Misconduct for the 2006/07 Financial Year shows worrying new trends in financial misconduct emerging within the public service, such as the increase in financial misconduct cases, increase in the categories "fraud" and "theft', high percentage of SMS members charged with financial misconduct in comparison to the total number of employees in the public service and increase in the cost of financial misconduct.
The increase in the number of cases could possibly be attributed to the provision of mechanisms to blow the whistle on corrupt and unlawful activities and the efforts of government to deal with such cases. However, the public service should not take too much comfort in the latter interpretation if it is to keep its "eye on the ball".
While this overview does not contain specific recommendations emanating from the analysis of financial misconduct cases reported by departments for the 2006/07 financial year, the PSC's comprehensive report for the 2007/08 financial year will include recommendations aimed at having a meaningful impact on the challenges faced in the financial misconduct domain.
Report on the indebtedness of Public Servants
There is an expectation by South African citizens on public servants to manage the State's financial resources in a responsible and transparent manner. The ability to manage financial resources requires competency in financial management, an ability to manage finances effectively and efficiently, financial discipline and planning. It is not too far fetched to suggest that the aptitude for financial management begins with the ability to manage personal finances in a disciplined manner. Any doubt on the ability of public servants to manage their own resources creates uncertainty on the level of trust, honesty and integrity with which they would manage departmental budgets and assets. Against this backdrop, the Public Service Commission (PSC) deemed it appropriate to undertake an investigation into the impact of micro-lending and garnishee orders on public servants and the implications that this has on the public service.
Methodology of the study
The study covered all national and provincial departments and focused on information in respect of garnishee orders issued and micro-lending transactions that took place during the 2006/07 financial year. Information was obtained from the public service's Personnel and Salary Administration System (PERSAL) detailing the number of employees who have been issued with garnishee orders as a result of being indebted to micro-lenders.
Data obtained from the PERSAL database was processed according to gender, age, department and component; amount paid to beneficiaries, post level and salary level. Most importantly, the requested information was provided to the PSC on the basis of anonymity, thus no names, PERSAL numbers, identity numbers, etc, were revealed.
Number of public servants who made payments to micro-lenders
In total, 4 063 public servants made payments to micro-lenders through PERSAL during 2006/07 to service debt incurred. Of these, 1 304 (32 percent) were officials at national level and 2 759 (68 percent) officials at provincial level.
It should be noted that information on the payments made to micro-lenders was only obtained in respect of the transactions recorded on PERSAL. In instances where departments failed to update information regarding some of their employees, PERSAL would only be able to reflect the latest information submitted on their records. As such, in respect of both garnishee orders and micro-lending payments, it was not possible to determine the exact numbers of employees who made payments as one public servant may have more than one micro-loan or could have been issued with more than one garnishee order. In addition, payments can also be made through stop order arrangements between the public servant and his/her bank as well as direct cash payments to the micro-lender. Therefore, there could be more persons who made payments to micro-lenders than the number provided by PERSAL.
In addition to payments made to micro-lenders, out of 1,2 million employees, there were 216 857 public servants who made garnishee related payments through PERSAL during the 2006/07 financial year.
According to data provided by PERSAL, the total debt owed to micro-lenders by public servants amounted to R13, 3 million during the 2006/07 financial year. Of this amount, R3, 3 million (25 percent) was attributed to employees based in national departments and the balance of R10 million (75 percent) to public servants based in provincial departments.
The total cost of payments as a result of garnishee orders that were issued to public servants amounted to R1,01 billion during the 2006/07 financial year. Of the R1,01 billion, R235 million (23 percent) is attributed to the garnishee debt of public servants based in national departments. The balance of about R776 million (77 percent) is attributed to the debt of public servants based in provincial departments.
In total, 25 percent of public servants who made garnishee related payments were on salary level seven (7). The second highest number of payments were made by public servants at salary levels six (6) followed by those at salary level eight (8). The highest amounts paid to micro-lenders during 2006/07 were paid by public servants occupying salary level 7 (R3,6 million). The second highest amount paid to micro-lenders was for employees on salary level 8 (R2,4 million) followed by salary level 6 (R1,9 million) and salary level 2 (R1,5 million). Salary levels 1 to 8 are classified as production level.
In relation to the Senior Management Service (SMS), the PSC noted that there are five members, i.e. four at salary level 13 and one at level 14, who made use of the services offered by micro-lenders during the 2006/07 financial year. One of the Core Management Competencies (CMCs) that all senior managers are evaluated against is Financial Management which requires managers to posses sound financial planning, budgetary and control skills.
The involvement of the SMS in the practice of micro-lending could be seen as indicative of the inability of the affected SMS members to plan their personal finances properly given that the SMS level is regarded as being "well paid" in remuneration terms. This raises concerns about the extent to which this deficiency impacts on the performance of their financial responsibilities within the public service.
Unlike in the case of micro-lending where no persons on salary levels 15 and 16 made payments, a total amount of R187 148 was paid towards garnishee orders by public servants at these levels. This does raise some concerns, especially since a head of department (compensated at salary level 16 and in the case of most provincial departments at salary level 15) is the accounting officer in terms of the PFMA and entrusted with the financial management of a department.
Of the 4 071 public servants who made payments to micro-lenders, the highest number (1 381) is attributed to persons employed in the occupational category "other occupations". The South African Police Service (SAPS) recorded the second highest number (843), of public servants who made payments to micro-lenders. This was followed by the occupational category of cleaners (299) and the nursing occupational category (226).
The highest number of public servants (79 360) who made garnishee related payments is attributed to public servants reflected in the occupational field "other occupations". SAPS recorded the second highest number (27 653) of public servants who made garnishee related payments. This translates to 20 percent of all public servants who made garnishee related payments. The occupational fields that recorded the lowest numbers of public servants who made garnishee related payments included, inter alia, prosecutors, youth workers and social work.
The report further reveals that male public servants accounted for R6,4 million payments in respect of micro-lending debt through PERSAL whilst females accounted for R6,9 million. In addition, female public servants paid R473 million (46 percent) of the total amount for garnishee orders through PERSAL during 2006/07 with males paying R538 million (54 percent). Public servants within the age-group 40 to 49 were responsible for the highest amount (R482 million) of garnishee related cost, followed by the age-group 30 to 39 (R280 million), and those in the age-group 50 to 59 (R206 million). Persons in the age-groups 40 to 49 and 50 to 59 paid the highest amounts, namely R6,6 million and R3,6 million respectively to micro-lenders during the 2006/07 financial years. The two age-groups are collectively responsible for more than three quarters (77 percent) of all payments made to micro-lenders.
Implications for the public service
While accessing micro-loans and other credit is sometimes necessary in the alleviation of temporary challenges, it is when such debt is acquired as a result of over-indulgence and as a measure to supplement the monthly salary that the practice raises serious concerns. When the latter happens, employees are often unable to keep up with the payments for the micro-loans and could end up in a debt spiral and subsequently become over-indebted.
The report found that the over-indebtedness of public servants as a result of micro-lending and garnishee orders has the following implications for the public service, namely, administrative burden on the State, ill-health due to financial distress, low productivity, irregular remunerative work outside the public service, and ethical considerations.
A parallel can be drawn between information on salary levels that were found to be prone to micro-lending and the findings of the PSC's Report on Financial Misconduct for the 2005/06 financial year. According to that report, cases of financial misconduct are more prevalent at the production level of the public service, that is, among salary levels 1 to 8. Given these findings, there could be a correlation between the level of indebtedness of public servants and the likelihood to commit financial misconduct. However, such an assertion must be viewed against the fact that there is also a correlation with the number of public servants employed at these levels and that the trend may be incidental to this fact.
Public servants who engage in remunerative work outside the public service often do so with a view to source additional income to supplement their salaries. While such engagement in remunerative work cannot be attributed to one particular reason, the need to service debt or ease their level of indebtedness cannot be ruled out. The PSC has done two separate studies that reflect on remunerative work outside the public service. The first reflected on the dual employment of medical personnel in the Gauteng province. Furthermore, given the findings of the PSC in a previous study on the Management of Public Servants who were elected as Municipal Councillors in the Limpopo and Western Cape provinces, this raises concerns about the level of indebtedness of persons in age-group 40 to 49 and the pursuit of remunerative work outside the public service. Persons in the age-group 40 to 49 were found to be taking up Municipal Councillor positions as second employment. Although it is understood that becoming a councillor is primarily the result of a person's political aspirations, it cannot be ruled out that there are instances where taking up such positions could be motivated by the need for supplementary income.
Among others, the PSC recommends that the information held by departments and PERSAL should be continuously audited so that the gaps and weaknesses can be identified and solutions provided. Moreover, departments should ensure that information is provided in line with the PERSAL data fields.
The PSC also recommends that a fully-fledged Employee Assistance Programme be embarked upon, looking into personal financial wellness with a key focus on legislative framework on micro-lending, procedure for the issuing of garnishee orders, credit rights as well as budgeting, borrowing, saving and how to manage these effectively.
Given this state of affairs, it is recommended that the implementation of the ethical framework be strengthened. To achieve this, managers need to be made aware of their roles in ensuring the promotion of professional ethics among public servants.
Departments are to keep abreast of the level of indebtedness of employees through the continuous monitoring of the records relating to micro-lending debt repayments and garnishee orders issued.
The current financial disclosure framework for the SMS only focuses on assets and income. It is recommended that this framework also include information on liabilities to ensure an overall assessment of a public servant's financial situation. This information should assist in assessing whether a persons' indebtedness may constitute a potential conflict of interest.
The PSC will continue to monitor the performance of the South African Public Service and through its reporting generate a broader discussion and debate in the good governance and service delivery discourse. These and other reports can be accessed on the PSC website www.psc.gov.za. Acts of possible corruption can be reported to the National Anti-Corruption Hotline - 0800 701 701.
Tel: 012 352 1196
Cell: 082 782 1730
Tel: 012 352 1070
Cell: 079 879 2025
Issued by: Public Service Commission
21 February 2008
Source: Public Service Commission (http://www.psc.gov.za)